Natural gas futures are trading higher on Thursday shortly after the regular session opening. The change in the market’s direction over the Christmas holiday is being attributed to a colder shift in the latest forecasts starting around the second week of January, according to Natural Gas Intelligence.
The latest model guidance maintained similar demand expectations overall for the next two weeks but shifted to colder in the 11- to 15-day period, according to Bespoke Weather Services.
At 14:45 GMT, February natural gas is trading $2.258, up $0.071 or +3.25%.
Bespoke Weather Services Outlook
The colder shift was “a little surprising given a continued tendency” in the pattern toward a combination of a positive Eastern Pacific Oscillation (EPO) and a positive North Atlantic Oscillation (NAO), Bespoke said. “This gives us some pause, as this suggests that either the projected 11- to 15 day cold weakens again as it rolls into the six- to 10-day, or the cold shot is real but just a narrow colder window in the sea of a warmer pattern type.”
“For now, we did adjust the forecaster colder starting on January 5 but did not move as cold as the current model consensus, as we want to see progression forward, or see a more pronounced change in the EPO/NAQ configuration that would be more supportive for a material colder turn.”
According to NatGasWeather for December 26 to January 1, “Strong high pressure will dominate much of the US through the weekend with much warmer than normal conditions where highs will reach the 40s to 70s, warmest over the southern US. The West Coast will be unsettled with rain and snow showers for locally cool conditions. The Northern Plains will be the only truly cold area with highs of 20s and 30s, but over very low population states. Overall, very light versus normal national demand through the weekend, then moderate early next week.”
There is not a lot of interest in the December 26 to January 1 forecast. All eyes are on the 11 to 15 day outlook. This is when the cold is expected to arrive.
Today’s reaction is short-covering in response to the change in the forecast. Aggressive counter-trend buyers or speculators will start to come in if the forecast continues to trend toward colder.
The rally could be dampened by position-squaring ahead of the EIA Natural Gas report on Friday. It is expected to show a 145B draw.
Technically, look for an upside bias to develop on a sustained move over $2.260, and for the downside bias to continue on a sustained move under $2.239.
This article was originally posted on FX Empire